Japan's current account surplus in fiscal 2013 shrank to its smallest since comparable data become available, as rapidly increasing costs for fossil fuels drove a wedge in the trade gap as Japan's nuclear power plants continue to be offline in the wake of the 2011 Fukushima disaster and the yen remains comparatively weak against other major currencies.
The Ministry of Finance said in Tokyo Monday that the 789.9 billion yen (7.76 billion U.S. dollar) surplus had sharply retreated from the 4.2 trillion yen surplus logged a year earlier, or around 81.3 percent, marking the third straight year of shrinkage and the smallest on record since records began in 1985.
Analysts said the figures were compounded by skyrocketing prices for fossil fuel imports from the Middle East to keep the nation powered up as peak electricity season approaches in summer, and said the government's almightily efforts to weaken the yen and boost its flagship export market have only exceeded in making imports more expensive and sending exporters overseas to find cheaper havens, parts and labor, and in doing so creating a " hollowing out" of the economy here.
"The yen's decline against the dollar since the start of 2013 has inflated the value of imported energy as the nation's nuclear reactors remain shuttered after the Fukushima disaster in March 2011," said Takuji Okubo, a chief economist at Japan Macro Advisors in Tokyo.
The ministry noted Monday that imports of crude oil surged 18.4 percent in the recording period and liquefied natural gas increased 18.2 percent. Japan relies on imports for 90 percent of its energy needs.
Simultaneously, however, as the price for fossil fuels rises, the Japanese yen has retreated against the U.S. dollar by around 20.8 percent and the euro by 25.7 percent on year on an average basis.
"At the same time, exporters are not using the advantage of the yen's slide to bolster shipments," Okubo said.
The finance ministry said that in fiscal 2013 through March 31 this year, exports jumped 12.2 percent to 69.80 trillion yen owing to the yen's depreciation, but imports rose 19.6 percent to 80.67 trillion yen. The annual goods trade balance, thus, fell into the red for the third year in a row as the government grapples to balance it books as Prime Minister Shinzo Abe finalizes his government's economic policy to be announced in June, having already hiked consumption tax here from 5-8 percent in an ambitious bid to reverse decades of deflation within a self- imposed two-year timeframe.
Abe wants to see Japan's public debt situation, the worst in the industrialized world at double the size of the nation's economy, stabilized by 2020, through further sales tax increases, with the current debt-to-gross domestic product ratio around 240 percent.
But recent government reports released by an expert panel in April suggested that this will be a tall order as, such measures won't be enough to bring the situation completely under control beyond 2020, as "baby boomers" reach 75, and become a massive strain on medical facilities and costs, further adding to the nation's burgeoning social welfare costs, the tab of which, in many cases is picked up by the government, in a vicious cycle of perpetually buying new debt with old.
In March alone, Japan posted a current account surplus of 116.4 billion yen, down 90.9 percent from a year earlier and one local analyst noted that, "if there were to be any more drops in the value of the yen it would almost certainly put further pressure on the current account, pushing it into deficit as returns on investments overseas fail to outweigh the trade deficit."
A current account deficit means a nation is spending more than it earns from trade and investment. A country that builds up liabilities with foreign creditors through chronic current account deficits could face funding problems if investors decide to withdraw their financing.
"That trade gap is also expected to widen further as the population ages, the workforce shrinks, and retirees multiply," the Tokyo-based analysts said.
"Some might hope that the income surplus will continue to widen at a pace sufficient to offset further deterioration in the trade balance," economists at Credit Suisse said. "But that could prove difficult in practice, given that the world economy is facing a decline in returns," they added, pointing to the global low rate environment and slower growth in emerging economies.
A country's current account surplus is one of the broadest measure of a nation's trade with the rest of the world and the data is keenly eyed by the Bank of Japan and the Finance Ministry ahead of new potential policy changes or monetary easing or tapering measures.
In Japan the current account surplus increases the nation's net foreign assets by the corresponding amount, and a current account deficit does the reverse. Both the Japanese government and private payments are included in the calculation and it is called the current account because goods and services are generally consumed in the current period.